Are the microfinance institutions serving the poorest? This discussion paper makes a case for orientation of microfinance institutions (MFIs) to the very poor. It advocates USAID's approach to promote micro-enterprise development (MED) instead of only micro-credit.

The author feels that USAID's approach to reserve 50% of its funds for spending on the very poor has two major flaws: lack of a credible system of measurement of the poverty level of MED service clients, and lack of direct linkage of poverty profile of grant applicants to grant-making decisions.

The author later explains why the poorest are being left out of the coverage of USAID programs. The reasons include lack of clarity on who is responsible for getting total portfolio of clients to the level of 50 percent "very poor,” lack of orientation of all the MFIs to poorest, and lack of incentives to the MFIs for reaching the poorest. The author concludes that the purpose of targeting half of the MED assistance resources to MFIs "oriented to the very poor" is to create incentive for institutions to work harder and more creatively in this direction.